Rates continue to move higher, with the US 10yr almost at the pre-pandemic peak.
Note that 2% reflects the mini-recession of 2019, and as such, we’d view 2.5% as a better indicator of where yields should consolidate.
We recently bought a small amount of AGBs, narrowing our underweight as fixed income sold off, and will continue to narrow the underweight as yields rise, ideally moving back to equal weight at that 2.5% threshold.
The configuration of macro markets remains consistent with the “hawkish Fed” stance that we’ve been emphasising since November (e.g. higher yields, higher real yields, lower break-evens, higher USD, widening credit spreads, pausing commodity prices).
Despite the recent widening, we continue to view credit as unattractive, given negative excess bond premia. It’s not the spread that matters so much as the haircut you should assume underpins it, due to expected defaults. Netting those out leaves you with the EBP, the premia that credit investors are ultimately trying to harness.
It is also interesting that copper does appear to have peaked. We remain underweight metals and mining on the back of slowing Chinese domestic demand (weaker fixed asset investment, a function of the woes across property).
Important Information: This document has been prepared by Aequitas Investment Partners ABN 92 644 165 266 (“Aequitas”, “our”, “we”), a Corporate Authorised Representative (no. 1284389) of C2 Financial Services, (Australian Financial Services Licensee no. 502171), and is for distribution within Australia to wholesale clients and financial advisers only.
This document is based on information available at the time of publishing, information which we believe is correct and any opinions, conclusions or forecasts are reasonably held or made as at the time of its compilation, but no warranty is made as to its accuracy, reliability or completeness. To the extent permitted by law, neither Aequitas nor any of its affiliates accept liability to any person for loss or damage arising from the use of the information herein.
Please note that past performance is not a reliable indicator of future performance.
General Advice Warning: This document has been prepared without taking into account your objectives, financial situation or needs, and therefore you should consider its appropriateness, having regard to your objectives, financial situation and needs. Before making any decision about whether to acquire a financial product, you should obtain and read the relevant Product Disclosure Statement (PDS) or Investor Directed Portfolio Service Guide (IDPS Guide) and consider talking to a financial adviser.
Taxation warning: Any taxation considerations are general and based on present taxation laws and may be subject to change. Aequitas is not a registered tax (financial) adviser under the Tax Agent Services Act 2009 and investors should seek tax advice from a registered tax agent or a registered tax (financial) adviser if they intend to rely on this information to satisfy the liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law.